- New Covid-19 cases have picked up – particularly in EM countries – but global markets are celebrating the reopening of the world economy.
- We see three main forces behind the latest spell of optimism: (exaggerated) hopes of a vaccinal reakthrough; promises of further policy action (Fed); the German-French push for the European Recovery Fund to operate fiscal transfers (the ‘frugal four’ have a less exciting plan).
- The King dollar – a key piece of the global financial puzzle, and often a barometer of investor sentiment – has started to pull back. EM currencies (one of the most cyclical asset class) are showing signs of life; paradoxically this is happening right as Covid-19 propagates in the EM world and President Trump is toughening up his stance against China again.
- A few days do not make a trend; our cautious views about the recovery suggest it is premature to switch to highly cyclical assets. Our guarded pro-risk stance also applies to EM investment.